Termination of Lease Clause: Break Fees & Best Practice

Termination of Lease clause outlines the conditions under which either party can end the lease agreement before the specified term expires. It provides legal recourse and clarity for early lease termination, mitigating potential disputes between the landlord and tenant.

It is also referred to as 'Lease Termination Notice' clause or 'End-of-Lease' clause or 'Early Lease Termination' clause.

Found in the Term & Termination article or as a stand-alone “Break Clause,” it:

• Identifies who can terminate (tenant, landlord, or both) and when (fixed break date, rolling break, casualty, condemnation, co-tenancy failure, etc.).
• Sets notice periods (often 6–12 months) and conditions precedent (payment of break fee, no existing breach).
• Details break fees / early-termination payments (typically unamortised incentives + defined rent multiple).
• Addresses rent abatement during destruction/repair, allocation of insurance proceeds, and award sharing after eminent domain.
• Explains make-good / restoration obligations and any relocation assistance.

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A well drafted 'Termination of Lease' clause contains:

• ‍Conditions for Termination
  Make it clear exactly when a lease may end. Outline the specific events (e.g., tenant’s failure to pay rent for 30 days, landlord’s inability to maintain habitable conditions) that trigger automatic or optional termination. For example, if the property is destroyed by fire or natural disaster, the lease could end without penalty to either party. Clarity here helps avoid disputes over whether a valid termination event has occurred.
• ‍Notice Requirements
  Define how much advance notice is required (e.g., 30 or 60 days) and how notice must be delivered (certified mail, email, personal service). Specify when notice is deemed “received” to avoid confusion if a party claims they never got the message. For instance, contract drafters might state, “Notice is effective three days after mailing by certified mail.”
• ‍Termination Fees and Penalties
  State the exact amount or method of calculation if a fee applies for ending a lease early. Examples include a penalty equal to one month’s rent or forfeiture of the security deposit. This clarity ensures tenants understand the financial impact if they decide to leave prematurely and protects landlords from financial loss when a tenant vacates unexpectedly.
• ‍Obligations Upon Termination
  Spell out what each side must do once the lease ends. For example, tenants should return all keys and ensure the property is left in a clean, damage-free condition. Landlords should promptly inspect the premises, confirm the final rent settlement, and process the return (or partial retention) of the security deposit based on documented damages.‍
• Early Termination Options
  Permit early exit under certain conditions. These clauses often appear in leases where tenants may face unforeseen changes, such as job relocation or military deployment. For instance, the lease might allow a tenant to break the lease with 60 days’ notice if they receive a job transfer beyond a specified distance. Clear triggers and notice periods help both parties plan and minimize conflict.
• ‍Remedies for Breach
  Indicate the remedies if one side fails to comply with termination rules. Common remedies include recovering actual damages (e.g., lost rent) or seeking injunctive relief (e.g., court order to vacate). For example, if a tenant vacates without notice, the landlord might have grounds to sue for the unpaid rent for the remaining term, unless the landlord has re-let the property.
• ‍Mitigation of Damages
  Oblige both parties to act reasonably to lessen any potential losses. For example, if a tenant moves out early, the landlord is typically required to make a good-faith effort to re-let the premises rather than letting it sit empty. Conversely, the tenant might be expected to cooperate with showings of the property to new prospects. This requirement encourages fair dealing and prevents one side from inflating losses unnecessarily.

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Contexts where this clause is critical:

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Examples:

1. On the last day of the term hereof, or on any sooner termination, Tenant shall surrender the Property to Landlord in the same condition as received, ordinary wear and tear excepted, clean and free of debris. Tenant’s moveable machinery, furniture, fixtures and equipment, other than that which is affixed to the Property so that it cannot be removed without damage to the Property and which Landlord does not require Tenant to remove, may be removed by Tenant upon expiration of the lease term. Tenant shall repair any damage to the Property occasioned by the installation or removal of its trade fixtures, furnishings and equipment. Upon termination of this Lease for any cause whatsoever, if Tenant fails to remove its effects, they shall be deemed abandoned, and Landlord may, at its option, remove the same in any manner that Landlord shall choose and store them, and Tenant agrees to pay Landlord on demand any reasonable expense incurred in such removal, including court costs, attorney’s fees and storage charges for any length of time the same shall be in Landlord’s possession. Tenant shall deliver all keys and combinations to locks within the Property to Landlord upon termination of this Lease for any reason. Tenant’s obligations to perform under this provision shall survive the end of the lease term.
2. Either party may terminate this Lease upon the occurrence of a material breach by the other party, provided written notice of such breach is given and the breaching party fails to cure within thirty (30) days. Tenant shall be responsible for rent up to the date of termination and any damages resulting from early termination.
3. Equipment Lease Agreement: Lessee may terminate this Lease with sixty (60) days' written notice if the Equipment becomes obsolete or Lessee's business needs change. Lessee shall return the Equipment in good condition and pay a termination fee equivalent to the lesser of three (3) months’ lease payments or 20% of the remaining lease term payments.‍
4. Residential Lease Agreement: The Tenant may terminate this Lease with thirty (30) days' written notice to the Landlord in the event of the Tenant's job relocation exceeding fifty (50) miles. Tenant shall pay a termination fee equal to two (2) months' rent. Landlord may terminate this Lease with ninety (90) days' written notice in the event of property sale. All notices shall be delivered by certified mail.

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Common structures and market practices:

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Key drafter notes for Lease Termination clause:

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Jurisdiction specific notes:

• ‍U.S.: Standard to have casualty and condemnation termination clauses. If absent, local law may apply doctrines: e.g., in some states, if premises destroyed, tenant can terminate via constructive eviction or state statute might protect them. But better to have express clause. Break options (tenant’s early termination) are as negotiated – not automatic. U.K.: “Break clauses” are the usual form of early termination (see Break Clause above).
• UK leases also often have a clause that lease ends if premises destroyed (since otherwise tenant could be bound to pay rent for rubble under old common law!). Landlord’s forfeiture for default is governed by statute (Landlord & Tenant Act) which requires notice (Section 146) – contract can’t avoid that, but contract defines what counts as breach for forfeiture.

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Bottom line:

The termination clause is your lease’s escape hatch. Draft it precisely - dates, fees, and notice mechanics - because courts enforce break conditions to the letter. Nail the economics and logistics now, and you’ll avoid costly disputes when business or buildings change.